Unless you’re diligently keeping track of your business expenses, you can’t really be sure how your small business is doing.
Expenses add up quickly, especially as operations scale. Business ownerz know they need to keep track of expenses, but the how, what, and why is elusive.
Some common questions I get are:
- Do I need to keep every receipt?
- How small is too small?
- How do I keep the expenses organized?
Keep reading for answers to these and more.
Accurate bookkeeping matters
Bookkeeping isn’t just for tax season. Accurate bookkeeping — which includes tracking expenses — gives you the information you need to make important decisions throughout the year.
Bookkeeping and tracking expenses help you
- track profitability;
- look for trends in your numbers; and
- make accurate forecasts.
So, if you want to know how to track business expenses for tax savings and growth, start with the following tasks outlined below.
Open a business bank account
To accurately track business expenses, you need to separate your business and personal spending. If you don’t already have one, you should open a business bank account.
A business bank account
- simplifies accounting and bookkeeping processes;
- offers specialized services; and
- is crucial for legal and compliance reasons.
For more information, go ahead and take a look at on how to choose a business bank account, take a look at my previous blog on the subject.
Establish a systematic approach
Start by establishing a clear system so you can easily access and organize your expense information, then create a designated space to store all relevant financial documents including
- bank statements; and
- any other records related to your business transactions.¹
If you are tracking business expenses retroactively and searching for receipts weeks after making a purchase, you need a better system.
Categorize and track expenses
A disorganized pile of receipts won’t do you much good, especially as your business ages and your systems grow and become more complex.
Organizing your expenses into meaningful categories is key to understanding your business’s financial landscape.
Create a list of categories that align with your industry and business structure. Here are the common categories:
- Office supplies
- Professional services
As you receive or generate expenses, assign them to the appropriate category.
This practice will enable you to analyze spending patterns, identify areas of cost optimization, and make informed financial decisions.
Keep the receipts you plan on writing off
Here is my simple rule for deciding whether or not to keep a receipt: If you plan on writing it off on your taxes, you need documentation that you made the purchase.
Remember, the IRS audits around 2.5% of small businesses.² It’s true that they’ll give you some leeway, allowing for estimation without receipts. But you should never rely on the kindness of the IRS. That’s why, if you understand how to keep track of business expenses, you’ll never be playing catch up with the IRS.
To properly track a purchase, you need two pieces of proof
The first proof you need is documentary evidence that you paid the amount, who you paid it to, and the date. A receipt will work for that purpose.
The second proof is a record of the expense. Make a note about the expense in your logbook or software system.
Low-dollar purchases don’t necessarily need a receipt
If the expense is under $75, you’re probably going to be okay without a receipt.³
So don’t sweat it too much if you accidentally toss a coffee receipt. However — it’s still best practice to keep documentary evidence of every expense you plan on writing off.
Digitize your expenses
Trust me, it’s better to have a series of pdfs than a pile of crumpled receipts. And keep backups.
Regularly reconcile and review
Consistency is the key to effective expense tracking.
Set aside regular intervals, maybe weekly or monthly, to reconcile your expenses. Compare your personal records with bank and credit card statements to ensure accuracy. If you identify any discrepancies, figure out where you went wrong.
Remember, accurate expense tracking empowers you to make informed financial decisions, maximize deductions, and contribute to the success of your business.
CPAs know how to keep track of business expenses
And it’s not just me saying this. The U.S. Small Business Administration recommends hiring a Certified Public Accountant to manage your financial records and offer strategic advice to grow your business.⁴
Let’s get your books in order.
If you’re wondering, yes, my firm can help you track business expenses. In fact, we’re the first Fort Worth CPA firm to offer enterprise-level financial processes to small business owners—a full suite of bookkeeping, accounting, strategic tax planning, and financial leadership.
We have over a decade of experience helping businesses of all sizes with tax planning and on-demand CFO services.
Schedule a discovery call with me today.
Jeremy A. Johnson, CPA
- What kind of records should I keep. Irs.gov. 2023. Available from: https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep
- Weller E. Top-10 IRS audit triggers. Small Business – Chron.com. Chron.com; 2011. Available from: https://smallbusiness.chron.com/top10-irs-audit-triggers-24366.html
- 26 U.S. Code § 62 – Adjusted gross income defined. LII / Legal Information Institute. 2020. Available from: https://www.law.cornell.edu/uscode/text/26/62
- Manage your finances. U.S. Small Business Administration. 2023. Available from: https://www.sba.gov/business-guide/manage-your-business/manage-your-finances#id-get-accounting-help